MORE TO SHOW HOW MUCH AMAZON DOMINATES E-COMMERCE

This Lesser-Known Amazon Business Is Growing Fast

• by 
• Leena Rao

• @leenarao

January 5, 2016, 6:00 AM EST

Amazon said its fulfillment service for merchants delivered more than 1 billion items to customers in 2015.

E-commerce giant Amazon handled the warehousing, packing, and shipping of 1 billion items last year for merchants that are part of its fulfillment program.

That detail, one of a number that Amazon revealed on Tuesday, shows the huge size of one of its lesser known services. Helping third party businesses sell in its online store generates extra fees and adds to the number of products available to shoppers beyond just what Amazon sells directly.

Over the past two years, the fulfillment program has seen a big growth spurt as more merchants join. The number of sellers using the service grew more than 50% in 2015 after a 65% rise a year earlier, according to Amazon AMZN -0.51% , which did not disclose the number of merchants involved.

In particular, Amazon said that international sales for third-party merchants in the fulfillment program has been gaining steam. Their cross border trade, which involved sellers in more than 100 countries sending orders to 185 countries, has more than doubled year-over-year.
The allure for merchants to sign up for the program, known as FBA, short for Fulfillment by Amazon, is to be able to sell to Amazon’s estimated 50 million Prime members. If not in the program, the merchants get no access to this group of heavy Amazon shoppers.
Prime members pay $99 annually to get anything from toilet paper to diapers to books delivered to them in two days or less. Increasingly, they are being delivered in a matter of hours through Amazon’s Prime Now service.
Amazon, of course, sells and stocks its own goods to sell online. But outside sellers now account for over 45% of total number of items sold on Amazon, a 5% increase since January, said the company.
It’s worth noting that the fulfillment business, which debuted in 2006, is costly for Amazon. In the third quarter, Amazon’s fulfillment expenses increased 22% to $3.2 billion. Sellers pay Amazon anywhere from $1.50 to $100 per order, depending on size and weight, for the service — plus a standard fee.
Amazon has been working on giving merchants in its marketplace more data to help lift their sales. Amazon added the ability for sellers to advertise their listings in 2012 in search and other places on Amazon’s website. But last year, it started letting merchants advertise in the first row or the first page of search results and within its mobile shopping app.
In 2015, the number of sellers using Amazon’s advertising service more than doubled, the company said. Those ads brought in $1.5 billion in direct sales.
Amazon’s release of details about its fulfillment business comes a day after an analyst dropped his rating for the e-commerce giant over concerns about slower growth. Amazon’s shares fell nearly 6% on Monday after James Cakmak, with brokerage firm Monness Crespi Hardt, dropped Amazon’s rating from “buy” to “neutral,” citing concerns about the rising costs for its cloud computing business and for developing original shows to stream on its Prime subscription video service.
Amazon must prove to investors that it has multiple areas of high potential growth that will offset investments in cloud computing and premium content.
Soon, Amazon will put actual dollar numbers behind the performance of its business. Later this month, it will report fourth quarter earnings that include the all-important holiday season.